Editorial: A boost for Britain's nuclear renaissance

The Hitachi deal is reason to celebrate, but there is a long way to go to fill our energy gap

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Little wonder that the Prime Minister was so effusive in welcoming Hitachi to Britain's fledgling nuclear renaissance yesterday. Before the Japanese energy giant bought the Horizon project from its departing German owners, E.On and RWE, the Government's energy strategy was tottering alarmingly.

Now, at least, plans for a fleet of new nuclear power stations are broadly back where they were, before last year's Fukushima earthquake prompted Angela Merkel to pull the plug on nuclear generation in Germany, forcing a re-think from E.On and RWE. Even better, at £700m, the Hitachi deal came in at around double the expected value.

Even with Hitachi on board, the challenges facing Britain's energy sector are prodigious. Demand for electricity is steadily rising and a fifth of our (dirty and obsolete) power stations need to be replaced in the next 10 years, with the added complication of legally enshrined green targets. Warnings that the lights may go out are no hyperbole. Ofgem recently warned that the spare capacity in the system is set to drop from 14 per cent to 4 per cent over the next three years alone, severely hampering its ability to cope with sudden spikes in demand.

Renewable power, most of it from wind farms, is part of the solution; so are nuclear power stations, which provide large-scale, zero-carbon, "baseload" power, to complement the intermittency of wind. The good news is that investment of the order of £110bn – equivalent to seven Crossrails – will mean thousands of jobs created in both traditional sectors and new, high-tech green industries.

The bad news is that fluctuating wholesale prices and policy uncertainty from the Government have left potential investors uncertain of their returns, causing potentially disastrous delays. Indeed, EDF's trailblazer project in Somerset – the only nuclear scheme set to be up and running by 2020 – is still not a certainty, after months of back and forth over costs.

Against such a background, the Hitachi deal is some cause for celebration. But it is too soon to breathe altogether easily. All the Japanese group has bought is planning permission to build at two existing nuclear sites, in Gloucestershire and Anglesey. The company bullishly hopes to have the first up and running by the mid-2020s, but there are any number of hurdles to be cleared in the meantime, not least regulatory approval for the reactor design, which could take years.

Nor has the vexed question of investment risk been satisfactorily answered. It is here that the Government's hotly anticipated Energy Bill comes in. Due imminently, the aim of the legislation is to stimulate investment by guaranteeing future energy prices, and therefore returns. But the draft proposals for "contracts for difference", to top up market prices where necessary, left so many unanswered questions – what the so-called "strike price" will be, say, or exactly who will underwrite it – that the to-ing and fro-ing has only added to the climate of uncertainty bedevilling the sector.

Meanwhile, the Chancellor's apparent keenness on gas has further complicated matters, as have a series of spats over subsidies for renewables. And then there was last week's apparently off-the-cuff pledge from David Cameron to force energy companies to put all customers on their lowest tariff, which only undermined confidence still further.

The Prime Minister described Hitachi's move yesterday as a "decades-long, multibillion-pound vote of confidence in the UK". It is certainly a step forward. But it is still only one step down a long and perilous road.

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